Airbnb makes half its SF money with illegal listings

Study shows that more than 50 percent of revenue in SF comes from hosts who are breaking the law

If there had ever been any dispute about why Airbnb refuses to support simple measures that would enforce the city’s laws, we now know the answer:

A report from the American Hospitality and Lodging Association (which was covered today in the Examiner), concludes that the relatively small number of Airbnb hosts who are breaking the law in SF and other cites account for a disproportionate amount of the company’s revenue.

The big money for Airbnb is in illegal rentals
The big money for Airbnb is in illegal rentals

Multiple-unit operators – that is, people who rent out more than one place on the site — account for 40 percent of Airbnb’s revenue nationwide, the study, done by Penn State University researchers, concluded.

In San Francisco, full-time rentals – units that are never occupied by the owner but are available as hotel rooms 365 days a year – accounted for 22.4 percent of the company’s local revenue, or $43.5 million, during the 12-month period from September 2014 to September 2015.

If you add the full-time rentals in SF and the operators with two or more units – all of which are illegal under existing law – it comes to 54 percent of Airbnb’s revenue in the city.

The report shows that the company made $194 million in SF during that one-year period, and $105 million was from illegal units.

(Now: Most of the multi-unit buildings may also be full-time rentals, so there’s probably some crossover. But the report shows only 24 full-time two-unit operators and more than 1,000 two-unit hosts, so if the numbers are off, it’s not by a whole lot.)

If the city simply banned Airbnb from listing units that aren’t registered, the 1,884 units that the study shows are illegally rented would be gone from the site – along with more than half the company’s revenue.

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The pattern is similar in other cities. So if cities around the nation followed SF’s lead, limited rentals to the single unit a host occupies, required registration, and prevented these hosting platforms from listing illegal units, Airbnb’s $1.3 billion in annual revenue would plummet by more than half.

The company argues that most of its hosts are simply middle-class people making a little money on the side – and in terms of the numbers of hosts, that may be true. But in terms of the company’s revenue, most of it comes from what in San Francisco are illegal rentals.

And it’s interesting that the company (while it disputes the study) has taken a new tack in its PR. Here’s what spokesman Nick Pappas told the Ex:

“The overwhelming majority of Airbnb hosts are middle class people who occasionally share only the home in which they live and while Airbnb hosts keep 97 percent of the price they charge for their listings, hotels take most of the money they earn out of the community,” Papas said.

Even if the overwhelming majority of the hosts are small-time operators, the study suggests that they aren’t the ones making Airbnb most of its money. If the company had been content to be a site that connects people who want to rent out rooms, a lot of the political battles would never have happened (in large part because Airbnb listings wouldn’t be cannibalizing the city’s housing stock).

Instead, Airbnb is going for the big time, with a huge valuation and investors like Ron Conway who want to make huge returns when the company goes public. And that requires, well, allowing people (or maybe encouraging people) to break the law.

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I emailed Papas to ask if he disputes the real conclusion of the study, which is that the big money is in rentals that are, at least in San Francisco, illegal.

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But look at the second part of his statement. Airbnb now seems to be saying: Hey, so what if we are a de-facto hotel company. Traditional hotels are bad for the local economy and we keep the money in town.

That’s a far, far cry from the way the company has defended its actions in the past, and suggests that Airbnb is moving closer to admitting that it’s not just a tech company – and that this whole “sharing economy” thing is a lie.

The supervisors who sided with Airbnb and refused reasonable law enforcement ought to be embarrassed. The city will never be able to control its housing stock if we allow these companies to make such huge sums of money with illegal rentals.

It’s so easy to fix – but I suspect Airbnb’s not going to voluntarily give up half its revenue to do it. So I guess at some point the city has to stop asking nicely.

  • David Bedno

    So, what I can’t understand is why whatever department in SF is responsible for regulating AirBnB (and others, but really) rentals can’t just go on AirBnB, make a reservation, check to see if the address is registered, and then write them a ticket as appropriate. Seems simple to me.

    • FLOlmsted

      Because they’re underfunded (by Ed Lee’s direction). They have, like, two staff members.

      You know what would be even simpler? Direct AirBnB to remove all listings that don’t have a permit to operate. That, or force them to turn over the database of listings so that they can cross-reference is with the registration database.

      • Cynthia

        Actually, they have six staff, not two.
        And yes, FLOlmsted’s suggestion would be easy — AirBnb put the kibbosh on it last spring. Air Bnb staffers met 62 times with city planning officials in 2015 to write the current law and make sure it had no teeth.

        • FLOlmsted

          Thanks for the correction – unfortunately as long as AirBnB are pouring poison in Ed Lee’s ear / money into his bank accounts, no number of staffers would be effective.

      • Chris Dabis

        The owner, manager of the short term rental should produce a copy of their Transient Occupancy Tax Permit to the online facilitator. After all, that uncollected TOT tax is a debt against the owner, the manager, and the facilitator, and against any future owners of the property if the tax remains unpaid due to a transfer of ownership.

        • FLOlmsted

          AirBnB is the manager of these units – so, they are just as responsible for producing the permits for regulators.

          • Chris Dabis

            I agree with your conclusion since the manager stands equally responsible for the taxes NOT collected.

  • wazzel

    So many Condo’ associations are banning Airbnb from their buildings just by specifying within their bylaws a one year minimum, sub-let term on units.

    I don’t live in a condo’ but I certainly understand the frustration that some people feel when units adjacent to their home are suddenly turned into party-central with countless people, suitcases and strangers coming and going.

    Add to this the tax-dodging and I can’t wait to see Airbnb fail.

  • Foginacan

    How are they able to determine how often the owner actually lives in the unit?

    • Tizzie Lish

      Duh. . . if the unit is rented through AirBnB type companies (let’s not forget AirBnB is not the only short term rental pimp corporation) for more than short-term, intermittent periods of time, or is rented through AirBnB listings all of the time, it is a reasonable leap of logic to conclude no owner is living in a space s/he is renting out through AirBnB most days of the year.

      The law says the owner has to actually live in the unit to be licensed to do short term rentals. This means the whole unit cannot be rented out short term anything because the owner goes on living there.

      If the owner rents for a few weeks in a row because the owner is on a long term trip, that should be easy to evaluate. InBerkeley, short term rentals are limited to 90 days a year. Seems like a reasonable accomodation to actual owner/residents who want to make some extra money without overburdening the neighbors with partying tourists all year long.

      • Foginacan

        Actually, no. That’s not reasonable.

        A listing on Air Bnb does not mean it’s vacant.

        People using Air Bnb for extra cash will go stay with family, friends, lovers, even hotels, when booked. Your assumption that by seeing it listed, you know their rental schedule, or usage, is really a mistake. Only the user and AirBnb know, unless it’s disclosed.

  • M. Montrouge

    Lol, did anyone actually look at the actual “report”? There’s barely anything there, it’s pretty much just an infographic funded by the hotel industry.

    Methodology seems kind of suspect.

    “All data excludes all shared rooms and apartments and unique units, such as boats, tree houses and tents.” There is no explanation given for this.

  • Dr J

    So I guess at some point the city has to stop asking nicely.

    Yeah, Tim, peace is obviously overrated. Airbnb has money, you want money to spend on stuff, so you should send men with guns to take their money.

    • FLOlmsted

      LOL yes TIM IS A WARMONGER!!!

      Idiot.

      • Dr J

        Civilized people get what they want by persuading people with words. Thugs use threats, fists, guns, and prisons. Tim took a pretty clear stand.

        • jhayes362

          Youe taking a pretty black and white views of things. What about “civilized corporations” that produce products that poison the planet and deprive man and beast of habitable places to live? What about “civilized corporations” that push deadly products like tobacco? What about “civilized” political systems that poison the water in cities like Flynt, Michigan?

          • Dr J

            Not sure I understand your point. Because someone polluted a river, it’s okay to shake down Airbnb?

          • jhayes362

            Asking Airbnb to obey the law is not a shakedown. The point I was making is that organizations with power are allowed to do some pretty evil things under color of law. It is not just persuading with words versus guns and fists.

            And if you think Flint was just a matter of a polluted river, you are woefully ill-informed.

          • Dr J

            Asking Airbnb to obey the law is not a shakedown.

            The beginning of wisdom is to call things by their proper names, so as not to be deceived by nice-sounding euphemisms. “Pay us money and do business as we say or we will shut you down” is not “asking.”

          • jhayes362

            I don’t see much wisdom in your guiding philosophy, which seems to be anarchism.

          • Dr J

            My guiding philosophy is to be clear about what’s true and what’s not.

          • jhayes362

            Looking at your posts, it seems you are unable to distinguish fact from opinion and thus are unable to say what is true and what is not. FLOlmsted is right, you are an idiot and I’m out of this discussion.

          • Dr J

            Another truth: name-calling will get you nowhere with rational thinkers. By all means take it elsewhere.

        • FLOlmsted

          Just making sure we’re not dealing in hyperbole, that we are, in fact, recognizing that Tim is in the civilized camp. The one that uses words. Because He’s a journalist.

          No one is threatening to come take away your illegal AirBnB at the end of a gun. Especially Tim.

          • Dr J

            No one is threatening to come take away your illegal AirBnB at the end of a gun. Especially Tim.

            No, he’s just rumbling for the government to do it for him. His hands are clean, right?

          • FLOlmsted

            LOL! Aren’t you an alarmist chicken little. Requiring ‘hosts’ to follow the law is hardly an act of violent oppression.

            I would hate to see how you react to an *actual* threat. Such a sad little pansy.

          • Dr J

            Requiring ‘hosts’ to follow the law is hardly an act of violent oppression.

            Of course it is. Why do you think people follow laws?

          • FLOlmsted

            Jesus Christ you’re an idiot. G’bye.

  • Greg

    San Francisco needs to stop it’s insistence on extremely rigid rental laws imposed on small owners. Owners of one building of 3 units or less should be exempted from rent control and lifetime lease rules for all new tenancies. These are people’s homes. If you own a home with a rental suite, you need the flexibility to write a one year lease, two year lease, etc. You may need the space back at some point. How would you feel if it was your home? If we had the flexibility to put rentals on and off the market rather than “forever or never”, you’d see a lot more rentals come on the market and a lot of Airbnb’s go away.

  • Andy M

    I agree that the City should regulate AirBnb in the same way it regulates other hotel companies. It isn’t right for the city to advantage one company over another within an industry. I also have no problem with disincentivizing the conversion of apartments to hotel rooms through higher taxes and registration and enforcement. Even getting the hosts to put a roommate in their spare room instead of a tourist would be a good thing.

    However, I think it’s a bit of a stretch to imply that these full time operators are having much of an appreciable impact on housing availability or prices, or that the city is losing “control of its housing stock.” The full time folks make a lot of money, but the’re really just aren’t that many of them. The issue with AirBnb is basically an untaxed revenue issue. Trying to tie that to the shortage of housing stock is just a distraction from the real issue with housing, which is that there just isn’t enough.

    I don’t think Ed Lee is all that bothered by Ron Conway in re: regulating AirBnb. Maybe I’m naive. I think the actual Airbnb operators living in San Francisco who vote, protest loudly, and stand to lose A LOT of money & the fact that the city-wide ballot measure lost are far more influential. I think that was also true for the Supes who voted against AirBnb regs.

    Speaking of the BoS, shouldn’t they now be able to pass some stronger laws? I haven’t seen any appetite to reintroduce that legislation.

    • M. Montrouge

      “Even getting the hosts to put a roommate in their spare room instead of a tourist would be a good thing.”

      This is problematic. Let’s say for example, you have a spare room and never used it for Airbnb, should the government force you to rent it because you’re depriving someone of a place to stay? Someone theoretically could sleep on the couch in my living room, should I be forced to rent it to somebody?

      Property rights don’t suddenly disappear the moment you do a short term rental, but people seem to act like they do. That’s why I’m not convinced by these numbers claiming how many units of housing Airbnb is taking off the market.

      • Andy M

        I agree that short term rentals probably aren’t removing that many units, and I didn’t mean to imply that I thought that “property rights should disappear.” I meant that cities can and should use taxes as a form of incentive. We should tax things we think are socially costly means that we think , in order to encourage behavior away from that activity.

        Property rights have always existed in the context of restrictions. You can own something, it doesn’t mean that you can do whatever you want with that thing. You can’t start a meth lab in your apartment, or a bordello, or even open a pizza place without a license. Why should running a tourist hotel be any different? There are already limits on how you can rent out your sofa.

        I never said that anyone should be forced to rent their property out. I said we should encourage long term tenancies over short term rentals. The way to do that is to tax short term rental income differently than rental income. The other way to do that is to allow lots more housing and hotels to be built, so that it doesn’t matter that some folks want to AirBnb.

        Neither I, nor the author (and I rarely agree with Tim), ever said that short term rentals should be eliminated. Just that, this activity is now regulated, and folks should be made to follow those regulations (i.e. registering and paying the appropriate taxes), which isn’t happening currently.

        Property owners get lots of very nice government interference in the form of tax subsidies. Government interference cuts both ways.

        Where I disagree with Tim, is (1) that the lack of enforcement comes from the corruption of the Mayor and BoS, and (2) that this is a really big problem.
        I think that the voters spoke pretty loudly on this issue, and that’s why there isn’t stricter enforcement, not corruption; and I don’t think the city is really losing many units due to short term rentals.

        I do think that it looks like there’s a ton of sweet untaxed revenue that the city shouldn’t miss out on; and since were in a housing crisis we don’t need to provide property owners with any extra incentive not to rent out their apartments to long term tenants.

    • Chris Dabis

      The Transient Occupancy Tax is a State Law, not a county ordinance. Therefore, the BOS has nothing to do with it other than to ask the voters to approve a specific TOT tax rate. Most are 10% now.

      Dive into the state law regarding TOT, here’s the link.

      http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=07001-08000&file=7280-7283.51

      • Andy M

        It’s 14% in San Francisco, but I was using the term “taxes” loosely. As in any fee or obstacle that the county could use to disincentivize short-term rentals. Like penalities for failing to register or for renting over a certain number of nights per year.

  • flight505

    It took three months for the Planning Department to get back to me about an illegal listing by my tenant. At the same time (October 26), I made another complaint about an illegal listing up the street from where I live. As of today, the home is unregistered and the complaint is still pending.

    Email shorttermrentals@sfgov.org to make a complaint. Include the address of the unit and a link to Airbnb or other site’s listing.

    This link lets you search by address to see what if any planning applications have been submitted for a unit: http://propertymap.sfplanning.org/

    After you enter the address (or locate the property on the map), click on the planning apps link. That page will show if there is the unit is registered for short-term rentals.

    Of course, the only problem with filing a complaint is that the too-small staff responsible for the investigations will be further swamped.

  • LSZ

    This listing was somebody’s home. https://www.airbnb.com/rooms/3877130

    The landlord evicted the tenants, claimed to be living in the space, and they are now renting it illegally. Airbnb does not have a button to report this.

    • Foginacan

      Do you know the details of this situation intimately? I guess you’re claiming this was a rent control apartment previously?

      What’s market rate rent on a 4 bedroom?
      At $399 a night, how many nights would you figure it’s booked?

  • Chris Dabis

    As one of California’s Treasurers and Tax Collectors (retired in 2010), that Transient Occupancy Tax is an “inheritable” tax! Amazing, isn’t it? Yes, the owner, the manager, and the facilitating company are all responsible for the registration, the collection and the remittance of the Transient Occupancy Tax. Revenue & Taxation Code 7283.5 (tax clearance certificate)

    • Tizzie Lish

      thanks for this information. It appears SF Supervisors, AirBNB and many others do not understand some of the laws already in place that are being greedily flouted.

      Tax evasion is tax evasion. Can the state tax collectors go after the owner, the manager and the facilitating company for tax evasion?

      • Chris Dabis

        Yes.

        Each of California’s 58 counties has their own treasurer & tax collector. It is the county tax collector who collects that Trans Occ Tax on properties in the unincorporated areas of the county There are 478 incorporated cities and towns in California, of which 456 are cities and 22 are towns., have do not have a tax collector, therefore their treasurer collects the TOT tax. So, those cities and those counties (SF is combined city and county) have the legal authority to collect the transient tax (under 30 day rentals) short term rental charges, and if those taxes, if not paid will become a lien onto the property owner, the manager and the future owners, too. EVEN IF THE PROPERTY OWNER has NOT REGISTERED the property with the tax collector as required by local ordinance.

  • Chris Dabis

    When we found a short-term rental (under 30 days) by using VBRO and AirBNB, etc, we contacted the owner and invited them to an audit. A few times the owner/manager would refuse to attend the audit, and they were told that they did not have to attend as we could conduct the audit without them, unless they had something they wanted to share with us so that we had the right information.

  • Murktastic

    These “middle class people” who own an apartment worth at least half a million dollars that they can rent out full time are just trying to scrape by.

    • Tizzie Lish

      Are you writing about SF half million dollar apartments? Because there aren’t many half million dollar apartments in SF anymore.

      But you make a good point: if someone owns any SF apartment and rents it out full time, they are not augmenting income in order to be able to stay in their owns or scrape by. They have a small business and it’s an investment — so pay your taxes, get your short term rental business license and play by the rules. Or face rising fines, risk jail for fraudulently cheating the city, even up to the point of forfeiting real estate that is being used illegally. . . . .

  • Tizzie Lish

    All cities, or perhaps this should be done as statewide laws, should create a licensing system similar to driver’s licenses. I can’t rent a car from CityCarShare without first giving them my driver’s license number and then they are able to check my driving record.

    With a licensing system in place for legal short-term rental landlords, AirBnB should be required to vet the people renting space through AirBnB, and other short term rental companies, before being able to list them.

    don’t put the burden on underfunded city staff, put the burden of verifying the would-be short term landlord is legally allowed to rent short term on AirBnB and their ilk. No license, no listing.

    And fine the AirBnB type businesses if they list unlicensed short term rentals.

    AND, finally, require the AirBnB type businesses to collect the hotel taxes due and remand them to the proper local authorities.

    Businesses collect and remand sales taxes. Businesses can collect and remand short term rental taxes.

    And if businesses like AirBnB don’t limit their listings to licensed rentals and collect and remand relevant hotel or sales taxes, such businesses can be fine, prosecuted and prevented from doing business in the cities where they do not obey the law.

    AirBnB was a good con, like so many capitalist cons, but its days of juking its way around regulation and law should be over.

    It’s not hard to come up with a system to protect any city’s rental stock from the predatory profits of investors at places lie AirBnB. Sure AirBnB is gonna fight, with billions at stake (when you consider they are active all over the world, altho I bet it is billions just in SF). Greedy capitalists have tough hides for big profits built on the backs of hapless taxpayers and renters getting priced out.

  • Tizzie Lish

    I once hired a Taskrabbit tasker to give me a ride home from one of those medical tests where they won’t let you take a cab. It was just a two mile ride. I don’t use Taskrabbit since they changed their system, just fyi, and limit customer and Taskrabbiters freedom to bid on jobs.

    But the guy who gave me that ride drove past two apartment buildings in that two mile drive for which he did clean up for AirBnB usage. After an AirBnB rental, he would tidy up two apartments that are dedicated full time to AirBnB rentals. Obviously whoever owns (or rents?) those two apartments does not live in them, as required by SF law.

    Over in Berkeley, the law says, and the city council dithers like the dopes they are over how to hold short term landlords to the law, that only short-term renter/landlords can rent a room in their home for no more than 90 days a year. No one enforces it so guess what? Entire buildings have been taken off regular rental market and converted into hotels, siphoning wealth and housing out of the local market with most of the profit going to speculative investors, or Wall Street, or name-that-capitalist but not to the city being harmed and transformed by the short term rental/hotel business.

  • Steve Shay

    Suppose someone starts a new company, “Share My Home”, and then plays by the rules, doing everything legally. Couldn’t they then sue Airbnb for unfair advantage?

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